The Internet is changing the way the brokerage industry does business. Today more and more investors are electing to trade via the Internet and avoid contact with a broker all together. Are the days of the large full service broker over or will there be a compromise between full service and self-direction? Has the rapid advancement in information technology helped the brokerage industry or hurt it? What role will IT have on the future of trading?
Just a few years ago all trades were done by calling a brokerage and talking to a broker who usually tried to push some hot stock and charged you a large sum to purchase the shares you wanted. The 70s gave way to a new era of discount brokers. The discount brokers provided the means to make trades at a significantly lower cost but at the expense of less informative and directed services. These discount firms utilized new computer technologies to process trades and opened up investment opportunities for many that would not have previously considered purchasing securities.
With improved IT capabilities and the introduction of the Internet the discount brokers were able to open the door even further by reducing trading costs and developing user friendly platforms for investors. The Brokerage industry is one driven by quality customer service and high profits. Investors want to maximize there investments at a reduced cost but still receive the highest level of service and information available. In the past investors were restricted by the amount of control they had over their investments, brokers made recommendation, pushes, and did the actual purchasing.
Today with the addition of the PC and online capabilities investors can choose what, where and when they invest. By utilizing online resources investors can perform the research and analysis that was once primarily done by brokers. This new technology is having a dramatic effect on the way brokerages operate. The once small discount brokers are utilizing the Internet to take over a whole new market segment and the larger full service brokerage companies are rallying to add online services.
This paper will explore these effects and how the industry is responding as well as address the questions raised in the opening. Selling securities via the Internet is easy and fast. Brokerage firms are offering their services on the Internet and this is reshaping the industry. Charles Schwab is one of these firms and it is dominating the online trading market. By seeing the potential the Internet offers and entering early Schwab has been able to revolutionize trading.
According to a statement made by Schwab President and CEO David S Pottuck Schwab and the securities markets experienced unprecedented volumes in January The investments we have made in capacity enabled our Web site to handle 1. 2 billion hits during January, approximately double the October 1998 level. It was also reported in a article by on Yahoos web page that Schwab customers funneled 153,000 trades a day through its intent site in January, up 65% from 93,000 a day in the fourth quarter (ic1998). customers held a record $521 billion in assets Unlike Schwab Merrill Lynch has been the leader in the brokerage industry for many years.
Until recently Merrill Lynch is has maintained its role as a full service provider without the addition of online trading. Although they have decided to enter the online trading segment they still want to maintain their high broker network and personal service. Merrill feels the Internet should be an extension of their services and not just a service in itself. They have elected to only offer online trading to a select few of their customers and charge commissions on a sliding scale. What does the future hold for the brokerage industry?
According to many of the firms the future will consist of mainly low commission online trading with the availability of an experienced professional. this is evident by the moves that companies are making now. The industry is striving to develop detailed easy to use platforms for the individual investor while at the same time provide personal service when desired. The advancement of IT will enable brokers to spend less time dealing with the customer and more time researching the market and developing strategies for the individual investor to use.